Debt collection Agency Luxembourg
Amicable Debt Collections Luxembourg
1. General information
Cosmopolite Collections maintain a professional collection process, focusing on the relationships between our clients and their debtors at all times. Our team of collection specialists carry out the collection process in-house, contacting debtors both verbally and in writing whilst adhering to state laws.
1.2. Local agents
At the present time, we cannot offer a field service for visiting debtors in Luxembourg. However, if debtors wish to visit our office, we will gladly meet them to discuss the solutions for their case face-to-face.
Cosmopolite Collections always charge interest to debtors. The applied default rate is 12%, except that the interest rate foreseen in the client’s sales conditions is higher.
In that specific case, we apply the client’s interest rate. From a cultural point of view, the recovery of late payment interest in Luxembourg is quite difficult and is often used as a negotiation tool between debtors and collectors.
25.1.4. Debt collection costs Luxembourg
In Luxembourg, we charge two types of collection costs: Collection costs according to the European Directive on Late Payment 2011/7/EU.
This is a fixed amount of EUR 40 (regardless of the amount of the debt). A penalty clause of 15% of the principal amount introduced.
2. Legal collections
25.2.1. General information
Legal action to recover receivables is based on the general principles of the Civil Code (‘Code Civil’), the Commercial Code (‘Code de Commerce’) and the Judicial Code (‘Code de Procédure Civile’). There are different courts in Luxembourg, and the competency of each court depends on: The amount of the claim The debtor’s place of residence.
2.2. Required documents
The mandatory documents required for legal action are:
- Copies of invoices
- A copy of the terms and conditions of sale
- A power of attorney signed by the client.
It is also best practice to produce a copy of the contract, proofs of orders and delivery of goods, copies of any formal notices and reminders sent to the debtor, together with other written documents signed by the debtor acknowledging the claim. In case of dispute, notes of all conversations between the creditor and the debtor should be kept and provided to our lawyer.
2.3. Legal dunning procedure
The summary procedure in Luxembourg has to be launched by the justice of the peace. This procedure is not always appropriate for the recovery of receivables for the following reasons:
The claim must be undisputed. The whole claim cannot exceed EUR 10,000. You can only claim interest and collection costs (EUR 40) according to the European Directive on Late Payment 2011/7/EU.
This procedure can be initiated by the creditor themselves or they can be represented by a lawyer.
If the creditor is not represented by a lawyer, the person signing the request form has to supply the necessary documentation proving they are authorised to sign for the creditor.
To avoid practical and organisational issues and disputes about the signature of the creditor, Cosmopolite Collections favour the representation of the creditor by a lawyer.
2.4. Lawsuit in Luxembourg
Normally, we initiate legal proceedings before the competent Luxembourg court of the place of residence of the debtor.
However, we see more and more that the Luxembourg courts control very strictly if they are competent to hear the case or not. If the contract, the invoices or the terms and conditions of the client foresee an exclusive jurisdiction for another court other than the Luxembourg court, the Luxembourg courts will refuse to handle the case.
There are two options for a regular lawsuit in Luxembourg:
- The summary procedure
This is meant for simple and undisputed cases. There are no written interventions from the lawyer. This procedure is supposed to be quick, but, as it is rather popular, not every case can be handled at the foreseen hearing and this can cause a longer time frame to obtain a judgment.
Every time a debtor raises an incident that needs to be verified (e.g. a payment is not mentioned in the statement of account) or a dispute, the case is postponed to a new hearing, leading possibly to multiple postponements before obtaining a judgment.
In this way, this procedure can sometimes lose its initial processing speed.
- The substantive procedure
The exchanges between parties happen via written intervention. These proceedings take more time to obtain a judgment and are therefore indicated for complicated or disputed cases.
Even in undisputed cases, nowadays a creditor can very often obtain a judgment more quickly by using this procedure than using the above-mentioned summary procedure.
2.5. Debt collection costs Luxembourg
The summons and inscription in the court’s calendar cost approximately EUR 350.
The indemnity of procedure is fixed by the court and may vary from case to case. These costs are rechargeable to the debtor, except if the court decides otherwise. Costs and fees for legal representation depend on the importance of the case and its complexity.
They are not chargeable to the debtor. Costs of enforcement depend on the number of actions a bailiff has to take and are charged to the debtor.
A general cost estimation for cases in Luxembourg is difficult to give but can be provided on a case-by-case basis, should legal action becomes necessary.
2.6. Expected time frame
The average duration for the legal proceedings and the enforcement is about six months, but it can take longer in the case of a dispute or an appeal.
2.7. Interest and costs in the legal phase
Once legal action has started, the applied interest rate is the rate stated in the client’s terms and conditions.
However, the court can reduce the interest rate in the absence of convincing proof that the debtor accepted this interest rate (e.g. signed terms and conditions or other written proofs of acceptance).
A penalty clause, as stated in the agreed terms and conditions, can also be claimed. However, the court can reduce or cancel this penalty clause in the absence of convincing proof that the debtor accepted the clause (e.g. signed terms and conditions or other written proofs of acceptance).
Instead of a penalty clause, the creditor can also claim the collection costs of EUR 100, according to the European Directive on Late Payment 2011/7/EU, regardless of the size of the debt. More and more we see the Luxembourg courts dismiss the penalty clause and only accept the lump sum of EUR 100.
3. Insolvency proceedings
3.1. General information
In Luxembourg, there are three types of insolvency: Bankruptcy Composition Controlled administration.
The commercial court accepts the debtor’s insolvency either with the goal of facing a non-payment situation (bankruptcy) or allowing and facilitating the continuity of the debtor’s ability to trade. At the start of an insolvency proceeding, all individual enforcement measures of creditors are suspended.
Only debtors with the status of merchants can be declared bankrupt in Luxembourg. The Commercial Chamber of the District Court assigns a trustee, and each creditor has to lodge their claim to the clerk of the court within the time frame set out in the judgment declaring the bankruptcy.
After verification by the trustee, all lodged claims are either accepted or rejected, and the Commercial Chamber of the District Court will decide on the admission or refusal of the claims.
This procedure is very rarely used in Luxembourg. Only debtors with the status of merchants can be granted a temporary composition in Luxembourg.
The debtor presents a request for this effect simultaneously to the Commercial Chamber of the District Court and the High Court of Justice.
The request includes a list of all creditors. After reviewing the case, the court will either accept or reject the temporary stay.
If the request is accepted, the court will appoint a practitioner, and all creditors will be invited to a hearing before the court to give their opinions about the request. A detailed report is then drafted and the court can only grant a definitive stay to the debtor if the majority of the creditors have agreed.
The High Court of Justice determines the duration of the definitive stay.
Any debtor whose credit is weakened can ask the court to grant controlled administration in order to reorganise their business or to help liquidate their assets.
The debtor’s request is presented to the Commercial Chamber of the District Court.
Once it is accepted, a judge is appointed to draft a report within a court-agreed time frame.
After the submission of this report by the judge, the court hears the debtor and rejects or accepts their request. If the court grants the controlled administration to the debtor, all of their assets will be put under the control of a court-appointed judge who has to finalise within the time frame fixed by the court a detailed plan for reorganisation or liquidation of the debtor’s assets.
This plan is communicated to all creditors, who should notify within 15 days whether they agree or disagree. It will be approved by the court if the majority of the creditors agree on it.
3.3. Required documents
In order to lodge a claim on behalf of our client, Cosmopolite Collections need:
- Copies of the invoices
- A copy of the terms and conditions of sale
- A statement of account
- A signed power of attorney (if required by the trustee).
3.4. Expected time frame and outcome
The expected time frame of insolvency proceedings varies from case to case, depending on the decision of the court and the complexity of each company.
One year is a strict minimum. As far as the outcome is concerned, the chances of recovering a dividend in bankruptcies are very poor (5%).
Recovery rates are higher in the composition and controlled administration options, as a plan is usually proposed by the debtor to all creditors.
The amount proposed by the debtor will vary in each case.